Apple CEO Cook: 'We're not in the junk business'

Sailing the smartphone seas in a gilded galleon, not a Chinese junk

Apple CEO Tim Cook has defended his company's strategy of sticking to the high end of the device market – read "expensive" – rather than competing at the low-cost, low-margin low end.

"There's always a large junk part of the market," Cook toldBloomberg Businessweek in a wide-ranging interview on Thursday. "We're not in the junk business."

When Cook & Co. rolled out the iPhone 5c and 5s last week, the chattering classes were quick to pounce on the unsubsidized price of the "unapologetically plastic" iPhone 5c – $549 for 16GB and $649 for 32GB – saying that such a hefty sum would be an insurmountable barrier to Cook's oft-stated desire to crack the smartphone markets in emerging economies, primarily China.

But to hear Cook tell it, Apple has never intended to compete at the low end of the market – maybe at the mid-range, but not at the mass-market level.

"We never had an objective to sell a low-cost phone," Cook says. "Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost."

Apple's high-road – and, of course, high-price – approach is nothing new. For example, when the company opened its first brick-and-mortar retail stores back in May 2001, it compared itself to luxury carmakers Mercedes-Benz and BMW in a blurb posted on its new online retail website:

Apple currently has around 5 per cent market share in personal computers. This means that out of one hundred computer users, five of them use Macs. While that may not sound like a lot, it is actually higher than both BMW's and Mercedes-Benz's share of the automotive market. And it equals 25 million customers around the world using Macs.

Tim Cook sans 'junk'
(source: Bloomberg)

Steve Jobs reprised nearly that exact argument in a 2004 interview. "Apple's market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market," he said at the time. "What's wrong with being BMW or Mercedes?"

From where we sit, there's absolutely nothing wrong with being BMW, Mercedes, or Porsche – if your company's goals don't include selling shedloads of low-cost kit to the vast majority of humanity who can't afford top-of-the-line goods.

"There's a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers," Cook told Bloomberg. "I'm not going to lose sleep over that other market, because it's just not who we are."

From Cook's point of view, there's plenty of high-margin profit to be made at the top ends of the smartphone and tablet markets, and Android device makers can have the low end. "Fortunately, both of these markets are so big," he said, "and there's so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business."

In related news, this Thursday is the one-year anniversary of the day Apple's market-close stock price peaked at $702.10, having hit $705.07 in intra-day trading. Last Tuesday, after the iPhone 5c and 5s – and their prices – were announced, that share price dipped from $494.64 to $467.71, then sunk further to $450.12 this Monday.

As we click the Publish button on this article, it has rallied a bit to $474.90 – a 36 per cent drop from its intra-day high of one year ago. ®

Bootnote

Whether you're an Apple fanboi or a Samsung, Motorola, HTC, et al. fandroid – or, for that matter, a devotee of Windows Phone, BlackBerry, or any other mobile OS – the Bloomberg Businessweek interview, which also features Apple's design guru Jony Ive and software headman Craig Federighi, is a worthwhile read. Check it out here, and author Sam Grobart's video commentary here.